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Increasing Profitability of Small Scale Orchard Producers through Optimizing Replacement Rate: The Case Study of Ghana

Author

Listed:
  • Mahrizal
  • Nalley, Lawton Lanier
  • Dixon, Bruce L.
  • Popp, Jennie S. Hughes

Abstract

This study sets out to empirically estimate the optimum annual replacement rate and age of cocoa trees in order to maximize the net present value of four common cocoa production systems. The study examines the costs and returns of four common cocoa production systems in Ghana associated with changes in cocoa prices, fertilizer prices, inflation rates, and labor prices. While this study focuses on cocoa, the methodology is applicable to any perennial crop. This study uses empirical yield curves and cost of production data from Ghana to determine when and what percentage of a cocoa orchard should be replaced annually to maximize net present value of revenues over time. Successive versions of the model are solved to determine how input and output price changes affect optimal replacement rates and replacement ages. Producers in both high- and low-income countries are reluctant to cull still productive assets, such as trees that are diminishing in yield over time. The Excel based model developed in this study could provide extension personnel with a simple yet powerful tool to illustrate to producers the benefits of systematic tree replacement. This study provides strong evidence of the benefits of replacing trees at the optimal time and rate.

Suggested Citation

  • Mahrizal & Nalley, Lawton Lanier & Dixon, Bruce L. & Popp, Jennie S. Hughes, 2012. "Increasing Profitability of Small Scale Orchard Producers through Optimizing Replacement Rate: The Case Study of Ghana," 2012 Annual Meeting, February 4-7, 2012, Birmingham, Alabama 119777, Southern Agricultural Economics Association.
  • Handle: RePEc:ags:saea12:119777
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    File URL: http://purl.umn.edu/119777
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    References listed on IDEAS

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    1. R. K. Perrin, 1972. "Asset Replacement Principles," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 54(1), pages 60-67.
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    More about this item

    Keywords

    Cocoa; Replacement Rate; Net Present Value (NPV); Production Economics; Q01; Q15; Q32;

    JEL classification:

    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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